Like fantasy football? Try fantasy funds

Let’s face it, most people spend more time playing fantasy football, reading gossipy stories or watching cute cat videos than they do picking and managing their mutual funds.

That may not be entirely a bad thing, as over-thinking a portfolio tends to lead to making too many moves, most of them bad ones.

But if mutual fund investing could be as much fun as those other things, investors might spend more time making better choices. So when you get frustrated by the actions of your fantasy football team—which for most people happens just a few weeks into the season—or when your rotisserie baseball league ends in the next few weeks, or when those cat videos all start to look the same, try to devote some time to playing fantasy mutual funds.

It may not seem like much fun, but it’s more productive than fantasy sports leagues because your chances of actually running a pro team are slim and the money to be made in most fantasy leagues is small. By comparison, you will oversee investments for years, and the financial benefits of running a good portfolio versus a perennial loser are significant.

The idea is simple: Run an imaginary fund portfolio—or several portfolios—aiming for specific performance goals, tracking results to develop comfort that extends to real investments.

There are plenty of websites where you can establish and track multiple portfolios. Pick your favorite free site; my favorites are Morningstar.com and, of course, my home team at MarketWatch.com. Once you see that you have ability to manage your money in funds without crashing a fantasy portfolio, you should be more comfortable in making real-life selections, and potentially in upgrading your real-life portfolio to the level of your dream holdings.

No one has invented a fantasy funds rule book and scorekeeping system, so here are things to consider when setting up your own league:

Play on your own or with friends?

This is about learning to be a better investor, and while you can certainly do that on your own, don’t be shy about sharing the game with friends, co-workers, children or relatives who would benefit from using imaginary money to better manage real dollars.

Let the group try different investment ideas. If playing with co-workers, for example, have everyone pick a portfolio of only funds available in your retirement plan, and then a portfolio of what they’d use if they left the employer and could roll the money into a self-directed IRA. That will help you all better learn the retirement plan, while also preparing you to trust your picking ability if you leave the company and can upgrade the portfolio.

What target are you aiming for?

Playing for maximum returns encourages risk-taking beyond what the normal investor can stand in real life (moves like using leveraged funds to juice returns, which can also blow up a portfolio). You’ll get the most from this game if your team only includes funds you might actually want to own in real life.

If you play solo, use your own objectives as a goal. If you need a 12 percent annual return to comfortably reach your goals, make that your target.

In a fantasy funds league with friends, make the target a common goal, with risk or volatility factored in. If you spread money through six funds in different asset classes, you might shoot for a 2.5 percent quarterly return, awarding points for coming close to the target and subtracting points for falling below it.

How long does your season run?

Investing season never ends, but mutual fund portfolios don’t require constant attention and upkeep, so you can run a league for, say, a three-year stretch without having players checking results constantly.

Set up interim rewards for quarterly or annual performance and consistency, but try to make this something that fits your investment style, meaning that you shouldn’t be looking at or managing your fantasy portfolio any more than you do your real-life investments.

What are the rules?

Try to build asset-allocation skills; studies show that how you spread money around is the biggest determinant of performance, larger even than which funds actually get picked. Don’t make your fantasy fund portfolio any more complicated than what you’d want to run in real life, or you will have a hard time turning your make-believe into a future reality.

To hone your selection skills, limit your choices to one fund per asset class. A fantasy “team,” therefore, might include six or seven picks, say one aggressive growth fund, a large-cap, a small-cap, a bond fund, an international and/or emerging market fund, and maybe a sector fund or some other wild card.

List three reasons for picking each fund; as the game progresses, this will show how your logic stands the test of time. Make the amount of play money you are investing realistic, a sum you either have to manage now or could see yourself running in the future. That will make wins, losses and underperformance that much more meaningful.

Track all costs associated with transactions, including all expenses that come with changing your mind. If you sell a fund that has made money, deduct applicable capital-gains taxes before reinvesting the proceeds.

What are the prizes?

Decide if there’s a small pot or if laggards buy lunch at predetermined time check-ins, but remember that the real prize here is that playing will make you a better investor, which means this is the rare game where everyone really can be a winner just for participating.

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